A Tale Of Two Investments

Whenever people argue about which is the better investment, I do not really know what to say. But I can comment on my forays into two of my investments- one equities and the other investment real estate.

We can be notoriously bad at predicting what will happen with our investments.

Back in 2000, I bought 19 shares of Berkshire B stocks. The average price adjusting for stock splits was about 35-42/ share. Today Berkshire B’s are worth above 200/ share and have split into 950 shares. That is approximately a 5-6 bagger with market volatility.

Around 2003, I purchased a duplex with the usual 25% down payment. I invested 144,500 into that investment. Today the duplex is assessed at over 3 million dollars. That’s about a 20 bagger. And that’s an approximation. The duplex would be netting about 48K yearly with current rents.

Am I an amazing investor? Nope. But since I did not know which would be a better investment, I put some capital into each one. Thankfully I put four times the amount into the better performing investment.

Both were growth investments. But with the power of leverage, the returns can skyrocket. And did I know that and work it out beforehand? Nope, all we focused on was ensuring that the rental property remain cash flow positive even by a small amount initially. That took some manoeuvring while my husband was doing his surgical residency but it worked out very well. Note what I just said. He managed this DURING a surgical residency. Everyone worries about taking care of clogged toilets- he simply called the plumber. All our renters were professors, bankers, policemen, government senior officials, etc. They treated our duplex like their own and I am very grateful for that.

We stayed safe with our investment real estate and keep it very simple. I bought a duplex as I have written many times in the past. It was a no brainer as this was a house that I would have been happy to live in if no one rented it. All our wonderful renters helped pay the mortgage off eventually.

I do not delude myself in believing that I am a good investor. I am learning all the time. But I am always ready to challenge how I think about things. It made sense to me to have non-correlating assets. I also knew that I needed investments that I have more control over. I also needed some of my assets to be tangible. If I had all that, I would be more comfortable investing into the public equities market.

Everyone’s level of risk tolerance is different. In fact, your level of risk tolerance changes as the years go by. I often think that financial advisors can only make recommendations with the paper portfolios since that is all they can sell. But do not overlook real estate especially early in your career since time works wonders with this investment. Some people are excellent real estate investors and are able to purchase strong cash flow investments right away. We were not one of those since we invested in very high cost of living neighbourhoods.

Never invest based on forecasts. No one knows where markets will go in the future. We focused on ensuring even a small amount of positive cash flow from the property.

I wanted to be prepared for inflation by having income producing real estate with minimal leverage. I am also prepared for deflation since I tend to keep cash on hand for the chance any asset is on sale.

It bears repeating but becoming financially educated is always a worthwhile investment since no one will care more about your money than you will. It is really eye opening to start dissecting your life and be vigilant to where your risks lie. It’s a good practice to maintain. At least then you can start addressing any shortfalls.

No one has a perfect investment plan for you. Each of us need to think about our ability and the amount of risks we are willing or need to take. We also need to think about what type of investments we want to be involved with. Some people dislike real estate and if that is the case, do not do it. The subconscious tends to often prove yourself correct. You likely have to deal with your investments for decades so you should like them enough to review them regularly.

I personally believe that the only money that should be in the markets is money you don’t need! You can save up a mammoth amount and live off the ETF distributions alone. Or you can reserve a portion of your networth that you have deemed for charities or as an inheritance and invest that into securities. It would be considered “forever money” so you can afford to go long in equities. Otherwise protect the money you need to live on in safe assets such as fixed income, bonds, cash or rental income from fully or almost paid off real estate.

The fear of not having enough money might be more powerful than missing out on potential gains. Unfortunately, many will be finding this out for the first time when the next bear market returns. I have invested through two such bear markets- the dot com bubble and the 2008 financial crash. The interesting point was that most investors were certain they would hold their portfolios through thick and thin, but some underestimated their significant others’ resolve to do the same. That is why regardless of the gains that I have experienced with equities, I am aware that I have a certain level of comfort with it. That is the point that you must discuss regularly with your significant other, it is not something to simply take the advice of your financial advisor. Investing is about the mental game and discipline. If you do not have those skill sets solidly in place you will lose the game eventually.

All this investing talk however is secondary. The single most important factor in building wealth is your ability to save. You can only invest if you save first. In fact some people can reach financial independence from savings alone. We reached well beyond FI with only about 6% of our assets in the public equities market. It can be done simply, safely and very quickly- do not let anyone fool you otherwise.